A record-setting bout of bitter cold weather swept down through the Midwest and across most of the country in early January. The Northeast region reacted with upward spikes in wholesale natural gas and power prices as generators and other customers struggled to procure natural gas supplies. In the Mid-Atlantic region, record-high winter peak demand along with unexpected outages of power plants and natural gas equipment drove peak electricity prices even higher than in New York and New England. The sharp rise in Northeast and Mid-Atlantic natural gas and power demand also spurred record-high natural gas storage withdrawals.

Day-ahead, on-peak power prices at the Massachusetts Hub went slightly above $200 per megawatthour (MWh) during a brief cold spell in mid-December 2013 and up to $237.75/MWh during the early January freeze. These prices were mainly driven by corresponding movements in natural gas prices as the demand for natural gas for both power and heating led to full use of natural gas pipelines in the region and a scarcity of supply. Prices at the Algonquin Citygate trading point in Massachusetts, which normally remain around $3-$6/MMBtu during unconstrained periods, reached slightly over $30/MMBtu in mid-December 2013 and were up to $38.09/MMBtu in early January.

According to the North American Electric Reliability Corporation's (NERC's) annual winter reliability assessment, New England faces essentially the same constrained natural gas supply situation as it did last winter. The Independent System Operator of New England (ISO-NE), the grid operator for New England's electric system, has implemented a number of short-term measures to mitigate the effects of fuel supply risks this winter, including a new Winter Reliability Program, which solicited bids from oil-fired, dual-fuel (for more information on dual-fueled generators see EIA's Form EIA-860), and demand response resources to provide extra capacity to the system. The program requires oil-fired generators to maintain oil inventory on-site and dual-fuel generators to demonstrate timely gas-to-oil switching capability.

Natural Gas Futures Post Highest Settlement In Over Two and a Half Years

Morningstar | January 23, 2014

Natural gas futures soared to a more than 2 1/2 year high on Wednesday as a deep freeze stretching across the eastern two-thirds of the U.S. boosted demand for the heating fuel.

Natural gas for February delivery rose 25.8 cents, or 5.8%, to $4.689 a million British thermal units on the New York Mercantile Exchange and reached its highest settlement since June 10, 2011. Nymex natural gas posted its largest one-day dollar gain in about 19 months and has added 36.3 cents, or 8.4% over the past two sessions.

The gains came as weather forecasters, including MDA Weather Services, a Gaithersburg, Md., company, projected "a prolonged period of intense cold to finish out the month of January" for the Midwest and Eastern regions of the country.

The frigid air is expected to bring sub-zero temperatures in Chicago in six of the next seven days and could last longer than another Arctic blast earlier this month.

That cold spell featured record low temperatures that forced many Americans to turn up their thermostats to burn a higher-than-normal amount of natural gas in furnaces to heat their homes.

"If this cold snap was only going to be day or two, you'd see the typical run-up [in natural gas futures], then a pullback, but this second round looks to be sustainable," said Richard Soultanian, co-president of NUS Consulting Group, a Park Ridge, N.J., energy-consulting firm.

Bentek Energy, an energy-market consultant, owned by The McGraw Hill Financial Inc. (MHP), estimated that total U.S. natural gas demand on Wednesday would hit 122.3 billion cubic feet, the fourth-highest level on record.

While the total isn't expected to eclipse the all-time high of 139.1 bcf, set on Jan. 7, the firm projects gas usage will climb to 126.8 bcf on Thursday.

Roughly half of all U.S. households rely on natural gas as their primary heating source, according to the Energy Information Administration.

While frigid weather has been draining the country's natural gas supply cushion, analysts and traders expect EIA data Thursday to show that utilities pulled 108 bcf of gas from storage in the week ended Jan. 17.

The projected stockpile decline is less than normal for this time of year, however, it will reflect the moderate temperatures of last week and not the most recent chill.

Gene McGillian, a broker and analyst at Tradition Energy in Stamford, Conn., said "I don't think the market is too concerned about [the data] this week."

If the storage estimate is correct, inventories as of Jan. 17 will still fall 13% below the five-year average for the same week.

Analysts have said end of March natural gas supply levels could eventually sink to 1.3 trillion cubic feet, a level that would be the lowest at the end of the heating season, a period from November through March, since 2008.

However, high domestic production, due to hydraulic fracturing and horizontal drilling techniques, could help supplies recover quickly.

Natural-gas futures on Thursday gained more ground after the U.S. Energy Information Administration reported that supplies of natural gas dropped 107 billion cubic feet for the week ended Jan. 17. The drop was generally within market expectations as analysts surveyed by Platts forecast a decline of between 102 billion cubic feet and 106 billion cubic feet. Total stocks now stand at 2.423 trillion cubic feet, down 598 billion cubic feet from a year ago and 369 billion cubic feet below the five-year average, the government said. February natural gas was at $4.86 per million British thermal units, up 17.5 cents, or 3.7%. It was trading at $4.815 before the data.

Crude Rises to Three-Week High as Distillate Supply Drops

Bloomberg | January 23, 2014

West Texas Intermediate crude rose to a three-week high after a government report showed that U.S. distillate-fuel stockpiles tumbled as cold weather bolstered heating demand.

Futures gained as much as 1.1 percent. The Energy Information Administration said supplies of distillate, a category that includes heating oil and diesel, fell 3.21 million barrels last week to 120.7 million. Crude inventories increased for the first time since November. WTI also advanced after the southern portion of the Keystone XL pipeline linking Cushing, Oklahoma, to the Gulf Coast started making deliveries yesterday.

WTI for March delivery advanced 93 cents, or 1 percent, to $97.66 a barrel at 11:58 a.m. on the New York Mercantile Exchange. The contract traded at $97.13 before the release of the report at 11 a.m. in Washington. Futures touched $97.79, the highest level since Jan. 2. The volume of all futures traded was 36 percent above the 100-day average.

Brent for March settlement dropped 39 cents, or 0.4 percent, to $107.88 a barrel on the London-based ICE Futures Europe exchange. Volume was 35 percent higher than the 100-day average. The premium of Brent to WTI narrowed to as little as $10.16, the narrowest since Nov. 8.

EIA - Weekly Natural Gas Storage Report

Summary

Working gas in storage was 2,423 Bcf as of Friday, January 17, 2014, according to EIA estimates. This represents a net decline of 107 Bcf from the previous week. Stocks were 598 Bcf less than last year at this time and 369 Bcf below the 5-year average of 2,792 Bcf. In the East Region, stocks were 253 Bcf below the 5-year average following net withdrawals of 67 Bcf. Stocks in the Producing Region were 75 Bcf below the 5-year average of 962 Bcf after a net withdrawal of 25 Bcf. Stocks in the West Region were 41 Bcf below the 5-year average after a net drawdown of 15 Bcf. At 2,423 Bcf, total working gas is below the 5-year historical range.

NYMEX Natural Gas Week-to-Week Price Change

Natural Gas Futures - Five Year Price

Disclaimer: The information contained in these reports is gathered from public and/or internal sources and is presented solely for the convenience of our customers and Newsletter Subscribers. Patriot Energy Group makes no representation or warranty, express or implied as to the accuracy or completeness of the information set forth in this newsletter, and Patriot Energy shall not have any liability to any person or entity resulting from use of this information in any way.